NOTE: The Association for Corporate Growth is having a kick-off meeting/ conference call for its SEC Task Force/Regulatory Group this  Wednesday, October 22 at 2:30 p.m. ET. The call is limited to private equity compliance officers, financial officers, and in-house counsel.  To participate, please contact Amber Landis at alandis@acg.orgor call her at 312.957.4272.

NOTE 2: ACG is also hosting a free breakfast discussion, “SEC Regulations' Impact on Private Equity Firms,” in New York this Thursday, October 23 at 8:30 a.m. ET. The SEC’s Igor Rozenblit, Huron Capital's Gretchen Perkins, The Riverside Company's Robert Landis, and I will be on the panel, which will be moderated by PrivCap’s David Snow.  The discussion will also be livestreamed.  For more information, click here.

Congress remains in recess until November 12, but here is a brief update on some noteworthy items, including:

  • The SEC Investor Advisory Committee’s recommended changes to the definition of an Accredited Investor;
  • A report detailing the results of ACG’s recent survey of private equity compliance and financial officers; and
  • PEGCC’s Q1 2014 private equity performance update, which finds that as of March 31, 2014, private equity outperforms the S&P 500 over the 10-year horizon but underperforms at the 1-, 3-, and 5- year horizons.

Venable LLP tracks a wide range of regulatory issues, so please contact me for more information regarding anything contained in this update.

The 113th Congress

House of Representatives 

The House is out of session through November 12, 2014.

The Senate

The Senate is out of session through November 12, 2014.

The Administration

Executive Order on Cybersecurity

Although it didn’t receive much coverage because of the upcoming elections and the Administration’s focus on preventing the spread of the Ebola virus, on Friday the President signed an executive order on cybersecurity that makes federal payments more secure, improves resources to detect and resolve identity theft, and increases credit score transparency.

Securities and Exchange Commission

SEC Investor Advisory Committee Recommends Changes to Definition of Accredited Investor 

Earlier in the month, the SEC Investor Advisory Committee met and approved recommending significant changes to the definition of an “accredited investor.” The recommended changes are:

  • If, as the Committee expects, analysis reveals that a significant percentage of individuals who currently qualify as accredited investors are not capable of protecting their own interests, the Commission should initiate rulemaking to revise the definition to better achieve its intended goal;
  • The Commission should revise the definition to enable individuals to qualify as accredited investors based on their financial sophistication;
  • The Commission should consider alternative approaches to financial thresholds, including limiting investments in private offerings to a percentage of assets or income; and
  • The Commission should encourage development of an alternative means of verifying accredited investor status that shifts the burden away from issuers.

Most industry associations want to make sure that if any changes are implemented, they do not result in a significant reduction in the number of Accredited Investors. A comment letter submitted by the Small Business Investor Alliance is located here.

Government-Business Forum on Small Business Capital Formation – November 20

The SEC announced that it will be holding its annual forum that focuses on the capital formation concerns of small business on Thursday, November 20, 2014, from 9:00 a.m. to 5:30 p.m., at its headquarters at 100 F Street, N.E., Washington, DC.  A link to register for the Forum is here.  Topics of discussion include:

  • Definition of Accredited Investor;
  • Disclosure effectiveness for smaller reporting companies;
  • Exempt securities offerings; and
  • Secondary market liquidity for securities of small businesses.

Commodity Futures Trading Commission

Re-Issue of Proposed Rule on Margin for Uncleared Swaps

Earlier in the month, the CFTC, along with the prudential regulators, released their re-proposed rule on margin requirements for uncleared swaps.  The re-proposal helps bring U.S. margin requirements for end-users of derivatives in line with global regulations and eliminate a potential rift between the CFTC, which had generally not required end-users to post margin on uncleared swaps, and the prudential regulators, which had required margining.  The prudential regulators’ re-proposed rule is here. Comments for the prudential regulators are due November 24, 2014 and for the CFTC are due by December 2, 2014.

Association for Corporate Growth (ACG)

Report on Key Findings of SEC Task Force Survey

ACG released the key findings of its ACG SEC Task Force Survey, which targeted private equity chief compliance, financial and operations officers, as well as in-house legal counsel. Over 200 people responded to the survey.  Key findings include:

  • Middle-market private equity officers are concerned with a broad range of issues;
  • SEC presence examinations appear to have improved over time;
  • The SEC could improve its outreach to the middle-market private equity industry; and
  • Respondents want ACG’s SEC Task Force to carry out a broad range of activities

ACG also held a webinar describing the survey findings in greater detail.

ACG SEC Task Force Kick-Off Call on October 22

ACG will be having the first meeting of its SEC Task Force this Wednesday, October 22 at 2:30 p.m. The Task Force is designed to be a resource for private equity fund compliance officers, financial officers and in-house counsel.

Small Business Investor Alliance (SBIA)

SBIA Summit for Middle-Market Funds – TODAY

The SBIA is holding its Summit for Middle-Market Funds today at The Breakers in Palm Beach, Florida. An agenda for the Summit is here.  The keynote address, “America's Fiscal Challenges and the Role Private Equity Plays in the Solution,” will be given by Erskine Bowles, Campaign to Fix the Debt.

SBIC Regulations Class – November 13, 2014

The SBIA and the SBA will be holding an SBIC Regulations Class on November 13, 2014. The class is mandatory for any fund seeking an SBIC license.  Classes are currently sold out, but interested persons can contact the SBIA at to be added to the waiting list.

Private Equity Growth Capital Council (PEGCC)

PEGCC Releases Top 10 Pension Funds by Private Equity Returns

The PEGCC released its annual ranking of large public pension funds, which found that the Teacher Retirement System of Texas rose to first place in the ranking of private equity investments, up from third place in last year’s report.  The Texas pension’s 10-year annualized private equity return was 18.2%, followed by the Massachusetts Pension Reserves Investment Trust (17.8%), and the Minnesota State Board of Investment (16.2%).  The report also found that private equity delivered a 12.3% annualized return to the median public pension over the last 10 years, more than any other asset class. By comparison, the median public pension received a 7.9% annualized return on its total fund during the same period.

PEGCC Releases Q1 2014 Private Equity Performance Update

The PEGCC released its Private Equity Performance Update for Q1 2014. The Update shows that as of March 31, 2014, returns from private equity funds (net of fees) beat the S&P 500 (including dividends) for the 10-year horizon by 6.6 percentage points.  The S&P 500 outperforms the private equity benchmark return for the 1-, 3-, and 5- year horizons.


McGladrey Study on Middle-Market Tax Burden

Accounting firm McGladrey released a report based on a survey of 525 middle-market executives which finds the vast majority of middle market companies have experienced tax hikes since the beginning of 2013 as a result of the "fiscal cliff" tax deal that became law last year and subsequent tax changes. According to the report, two-thirds (66%) of middle market executives report that current federal tax policy is limiting their growth.  In addition, a majority of middle market companies that reported having reduced their workforce and cut expansion plans since the beginning of 2013 said that the 2013 tax reform law contributed to their decisions to do so.